Nolte, Ingmar and Voev, Valeri. (2012) Least squares inference on integrated volatility and the relationship between efficient prices and noise. Journal of Business & Economic Statistics , Vol.30 (No.1). pp. 94-108. ISSN 0735-0015

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Abstract

The expected value of sums of squared intraday returns (realized variance) gives rise to a least squares regression which adapts itself to the assumptions of the noise process and allows for joint inference on integrated variance (), noise moments, and price-noise relations. In the iid noise case, we derive the asymptotic variance of the and noise variance estimators and show that they are consistent. The joint estimation approach is particularly attractive as it reveals important characteristics of the noise process which can be related to liquidity and market efficiency. The analysis of dependence between the price and noise processes provides an often missing link to market microstructure theory. We find substantial differences in the noise characteristics of trade and quote data arising from the effect of distinct market microstructure frictions. This article has supplementary material online.

Item Type:	Journal Article
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School
Journal or Publication Title:	Journal of Business & Economic Statistics
Publisher:	Routledge
ISSN:	0735-0015
Date:	2012
Volume:	Vol.30
Number:	No.1
Number of Pages:	15
Page Range:	pp. 94-108
Identification Number:	10.1080/10473289.2011.637876
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
URI:	http://wrap.warwick.ac.uk/id/eprint/44847

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